Geoff Cutmore - Morning Thoughts

The Fed, FTSE and China

It was never going to be an easy start to the European trading day after U.S. investors decided they didn't like the Fed minutes. Interestingly, as John Wraith, head of rates strategy at RBS, pointed out, the bond markets decided the commentary on growth risks and inflation was much more balanced.

Investing in China 2007

There was barely a ripple in the U.S. Treasury market, even as equities turned around an inter-day high on the Dow and closed the session with very modest gains. It suggests there is considerable sensitivity among U.S. equity investors to flagging growth -- this was probably the more interesting element within the minutes, after all it's no revelation that the Fed remains focused on telling the market it is fighting inflation.

As a European investor it's probably going to be worth keeping a sharper eye on the U.S. data if, as today's price action would suggest, we are not going to be able to decouple from U.S. indices. While data in Germany and other parts of the Eurozone suggest improving underlying fundamentals, that story doesn't appear compelling enough yet to immunize our own markets from weak U.S. numbers. Friday's jobs report is the next biggie, so position appropriately.

Andy Brough, fund manager at Schroders, took the guest host seat this morning. His fund did over 30% last year and more than 100% over the three years so he must be doing something right. He likes the Internet story and in the retail sector owns Findel and Asos, companies that are mainly using an online or mail-order model to reach their customers. Validation came in the release of the Next trading statement for the holiday period, which revealed a decline in the reported like-for-like store sales, while the online Next Directory service boomed. Andy also owns online market research company YouGov. Pushed on what companies he has been adding recently that have not been very strong performers so far, he offered up WS Atkins the engineering company.

On the broader market, Mr. Brough suggested we see 10% on the FTSE-100 this year. If it's delivered I don't suppose anyone will grumble too much -- more interestingly he thought we might have a ropy 6-8 months with the real performance coming in the final 5 months of the year. He suspects there are too many people optimistic about the level of corporate earnings, and only when some reality has set in will the market be able to build a base and push ahead. Frankly, trying to pin anyone down on a 12-month market call is of limited usefulness -- suggest investors refocus on the individual stock stories.

Robin Griffiths of Rathbone Brothers gave us a technical take on the market -- suggesting stocks will be OK this year, but there will be some setbacks in the middle. How high is your tolerance to losing money? I suspect, that as the FTSE just manages to reclaim levels last seen in 2001, there are still plenty of investors struggling to re-commit to equities.

Yang Liu, Atlantis Investment Management told us China as a market is like a young boy against an old man (the established G7 markets). It can run faster and further. In other words, just because you doubled your money last year doesn't mean you can't make a heap of money in 2007 in China stocks. Maybe she is right. If you made money in China, well done. I will be honest here, and I spent nearly a decade of my early career working in Hong Kong, I still don't think I know enough about most Chinese companies to feel really happy getting involved. How about you?